Housing policy needs clarification

By Chang Chin-oh and Chiang Ying-hui 張金鶚，江穎慧

In an effort to curb property speculation, the government recently passed a luxury tax to be levied when property is re-sold within a certain period of time from the original purchase. The tax has yet to come into effect, but even now industry insiders are saying it will not be effective in controlling house prices and that the market will soon rebound. They are also predicting many businesses involved in the industry will be forced to close as a result of the tax, and that unemployment will shoot up as a consequence.

The government is also proposing increasing the supply of affordable housing, including “modern housing,” “appropriate housing” and “social housing.” The first refers to housing built on land specifically released by the government for the purpose, the housing — but not the land — to be “owned” by people, who fulfill certain requirements, for a set period. The second refers to housing built on land purchased from the government by construction companies for the express purpose of building properties with certain conditions attached regarding pricing and permitted buyers. The third, “social housing,” means apartments the government owns and has built for rent, and not sale, to those with low incomes.

The government has launched into this drive head first before the effects of the tax have become apparent and, even more unadvisedly, is encouraging people to buy property before the market has stabilized and house prices have come back down, increasing the preferential mortgages for young people considerably to up to NT$7.2 million. The government has introduced this string of measures in an effort to achieve “residential justice,” but it is confusing in its complexity.

What is the fundamental rationale behind the government’s housing policy? It seems to be attacking property speculation with the left hand while protecting the real-estate industry with the right. Who is it actually trying to protect? Do they want “residential justice” for the general public or for the real estate industry?

After the luxury tax was passed, investor interest in the housing market dampened -markedly, but it is too early to see from currently available figures in this pre--implementation window any conspicuous decline in prices. This is mainly because of buyers’ expectations. There is therefore no evidence that the policy will succeed in bringing booming price under control. The government says it is concerned that coming down too hard on property speculation would risk retarding economic growth, and so has introduced a raft of other measures to stimulate the economy while it is waiting for the luxury tax, aimed at curbing this speculation, to come into effect.

But does this make sense? The government maintains that this specific measure in the luxury tax is aimed at hitting short-term investors meddling in the market, but it is only being imposed on the resale of property within, at most, two years of the original purchase, which will affect a narrower group of investors than, say, the stamp duty levied in Singapore on reselling within four years. This means that the effect of the luxury tax will be limited in scope. It is therefore difficult to see how they arrived at the conclusion that putting too strong a curb on property speculation would compromise economic growth.